Part of the orthodoxy of right-wing ideology is that corporate tax-cuts are an unalloyed benefit to the economy. The argument goes that the lower the tax regime, the more jobs that are created.
While that ideology has been proven patently false in Canada, for those seeking some well-reasoned arguments the next time a 'true-believer' captures your ear, look no further than a fine series of letters published in today's Star, only one of which I am reproducing below:
Corporations optimize their operations to maximize after-tax profit. When corporate profits are heavily taxed, reinvesting in the business provides a tax write-off that has a powerful risk damping effect; simultaneously, cash hoarding is penalized. Companies have no choice but to reinvest their profits.
When corporate tax rates are unsustainably low, reinvestment risks are not counteracted by tax breaks and there is no penalty for hoarding. It becomes hard to justify new staff and equipment when the lower-risk, higher-profit approach is to simply hoard cash.
This is not ideology; it is the mathematically inevitable result of optimizing for maximum after-tax profit. That Flaherty has not made the connection between the last two decades of tax policy and the current hoarding problem is rather surprising.
Matthew B. Marsh, Kingston
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